Electronic payments are fast becoming the means for conducting consumer transactions around the world. Instead of using cash, consumers are using many different types of cards to buy a wide range of items. These consumer card types include credit, debit, and prepaid cards.
Credit cards have been in existence for a relatively long time. Retail stores initially issued these cards for use in the store or chain of stores. The store extends credit to a customer to purchase items and requires payment at the end of a billing cycle.
Credit card processing networks, such as the MasterCard® network, now exist, allowing consumers to use one credit card to shop at a variety of merchants. With this type of card, a card issuer, such as a bank, extends credit to a consumer to purchase products or services. When a consumer makes a purchase from an approved merchant, the card number and amount of the purchase, along with other relevant information, are transmitted via the processing network to a processing center which verifies that the card has not been reported lost or stolen and that the card's credit limit has not been exceeded. In some cases, the consumer's signature is also verified. The consumer is required to repay the bank for the purchases, generally on a monthly basis. Typically, if the bank is not fully repaid by the due date, the consumer incurs a finance charge. The card issuer may also charge an annual fee.
Debit cards are also currently in use. They are typically linked to the cardholder's existing deposit account at a bank. There are generally two types of debit cards—“on-line” and “off-line.” When a consumer makes a purchase using an on-line debit card, the consumer inputs a personal identification number (“PIN”) to a terminal that is connected to a central processing center over a network. The center verifies the card number and PIN during the transaction, and the linked deposit account is immediately debited the amount of the purchase. When a purchase is made using an off-line debit card, and there is no connection to a central processing center, the customer's signature is typically used to verify the identity of the cardholder in much the same way as is done with credit cards. The information is later sent to a central processing center or directly to the relevant bank. A PIN may also be used in conjunction with off-line debit cards.
Another type of consumer card is a prepaid card. A consumer purchases the card for a particular amount of money. The cash value of the card is typically stored in either of two ways. The value can be indicated by data stored in the memory of the card. Alternatively, in a card having a magnetic stripe or in some cards having an integrated circuit (“IC”) on them, value is indicated by data stored in a central host, which can be accessed using information stored on a magnetic stripe on the back of the card. Verification of the identity of the purchaser of the card is typically not required. With either an IC-type card or a magnetic stripe-type prepaid card, value is preloaded before a purchase is made. In addition, individual users of prepaid cards typically have no demand deposit account (“DDA”) relationship with the financial institution that holds the prepaid card funds. When a consumer uses a prepaid card to make a purchase, the data indicating the value currently associated with the card is decreased by the amount of the purchase and any fees, if applicable. If the prepaid cards are not linked to a central host, the value indicated on the card will typically be unrecoverable if the card is lost.
Prepaid cards have been issued in association with particular merchants. These cards can be used only when purchasing goods or services from that particular merchant, similar to the limited usage associated with store credit cards. The cards are typically available in preset denominations (e.g., $10, $50, $100) and may or may not be activated before they are shipped to the store. If preactivated, and stolen by an unscrupulous employee or others, a card could be used immediately to make purchases before the theft was discovered. At any time after a customer purchases this type of card from a particular merchant, the card can be used to buy goods or services from that merchant. The purchase process typically operates as follows. The cardholder presents the card for payment. The store attendant verifies the card number through a terminal which communicates with a store network and causes a debit of the amount of the purchase to the account associated with the card. When the card's value is depleted, the card is typically discarded.
This type of prepaid card has several drawbacks. First, the cards are typically only offered in preset denominations, severely limiting flexibility in purchasing. Second, the cards are generally not reloadable, requiring customers to purchase additional cards when the value associated with the original card is depleted. Third, the cards are only usable when making purchases from the particular merchant. Finally, the cards may arrive at the store already activated or may be activated in bulk, by the merchant upon receipt, subjecting them to possible unauthorized use. For example, the merchant's employees could use or give away the cards when the cards are at the store, or others could illegally use the cards if they are lost or stolen while being shipped to the merchant.
A widespread current application of payment cards is for telephone services. These purchases have been made on either a credit or prepaid basis. On a credit basis, a telephone services company (“TELCO”) issues a calling card having a card number. When these cards first appeared, the card number was typically the cardholder's home telephone number (10 digits) plus an extra 4-digit number. However, today, the card number is more likely not related to a home telephone number. This 4-digit number, similar to a PIN, is typically assigned to the cardholder by the TELCO, and it sometimes appears on the card along with the card number. When a cardholder uses this type of calling card to make a call, the charge appears on the cardholder's monthly telephone statement. If the 4-digit number appears on the card and the card is lost or stolen, until the card is reported missing, anyone possessing the card can illegally use the card and cause the owner of the card to incur large phone charges.
Telephone services may also be paid for on a prepaid basis. Such prepaid cards, issued by TELCOs and other companies who buy and resell time from TELCOs, are widely available at many retail establishments. The cards typically have 10-digit card numbers and a 4-digit PIN that is assigned by the card issuer. The card number and PIN are printed on the card. The cards are available in preset denominations each corresponding to an amount of “phone units.” A “phone unit” is usually related to the time and, in some cases, the distance of the call. An account is set up by the card issuer to keep track of how many phone units are associated with the card. These cards are typically sold by a TELCO, a service provider, or a retailer and are activated by the TELCO when a cardholder calls a customer service number (usually via a toll-free number) after purchasing the card. The initial value associated with the card is predetermined and the card number and PIN are preassigned. Anyone who has access to the card and the PIN is able to use the card. To use the card, the consumer typically calls the TELCO's customer service or access telephone number, enters the card number, the PIN, and the telephone number to be called. The card issuer, or a service bureau acting on its behalf, keeps track of how many phone units remain on the card and decrements the remaining units based on the duration and, in some cases, distance of the call. When the consumer uses up the phone units on the card, the consumer typically disposes of the card and purchases a new card to make additional phone calls.
The telephone application may also be combined with other applications on a single card. Thus, prepaid cards associated with a particular merchant may also be associated with a TELCO and be used to pay for telephone calls on a prepaid basis.
As currently implemented, using a telephone application on a prepaid card has several drawbacks. If the PIN is not written on the card, it is difficult for the cardholder to remember the PIN when using the card to make phone calls because the PIN is assigned by the card issuer. If the PIN is written on the card, then the phone units that remain on a lost or stolen card can be used by anyone. As with the merchant-based prepaid cards, the cardholder is required to purchase a new prepaid telephone card when the phone units are used up. As a result, it is even more difficult for a cardholder to remember a PIN, because the PIN keeps changing with every new card purchased.
It would, therefore, be advantageous to have a prepaid card that addresses the above-noted problems of merchant-based prepaid cards and prepaid telephone cards. It would be advantageous to provide a card that is more flexible than the cards typically available today, that allows a cardholder to purchase a card without an issuer-established preset value and to select a PIN that is easily remembered, a card that is preferably reloadable, and that also allows purchases to be made from a wide variety of merchants. It would also be advantageous to provide a card that is individually activated at the point of sale, so that the card would not be able to be used by unscrupulous employees or other individuals who may intercept the card in transit between the card issuer and the point of sale, or when it is displayed at the point of sale.